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What Is the Ichimoku Cloud?

What Is the Ichimoku Cloud

Hosoda referred to the system as the Ichimoku Cloud.

The Ichimoku Cloud

In terms of visual appearance, the Ichimoku Cloud is similar to Japanese candlesticks. However, it contains more data points than a standard candlestick chart. At first glance, the system appears to be complicated and confusing.

According to traders who use Ichimoku on a daily basis, the system provides a much clearer picture of potential price action compared to candlesticks. Additionally, Ichimoku produces well-defined trading signals with precise entry and exit levels.

In terms of specific calculations, the Ichimoku Cloud consists of five different calculations. These calculations are displayed as lines on a typical candlestick chart. Each line represents a moving average.

  • 9-day period moving average.
  • 26-day period moving average.
  • 52-week period moving average.
  • Combined moving average of 9-day period and 26-day period.
  • Lagging moving average based on the closing price.

These five data points create a ‘cloud’ above and below the market price. The overall trend is up when the current price is above the cloud. The overall trend is down when the current price is below the cloud.

When the price is in the cloud, the trend is neutral. Below is a representation of the Ichimoku Cloud.

What Is the Ichimoku Cloud

This chart contains nine months of trading activity for soybeans. As you can see from the chart, soybeans have been in a continuous bull market since July 2020. Soybean prices have been above the green cloud throughout this bull market. This is a perfect example of how Ichimoku works incredibly well at following the trend of the market.

Brief Summary of the Ichimoku Cloud

  • Goichi Hosoda began developing the Ichimoku Cloud in the late-1930s.
  • Ichimoku is a trend identification system based on moving averages.
  • In terms of visual appearance, the Ichimoku Cloud is similar to Japanese candlesticks.
  • It contains more data points than a standard candlestick chart.
  • Ichimoku produces well-defined trading signals with precise entry and exit levels.
  • The system consists of five different calculations.
  • These calculations are displayed as lines on a typical candlestick chart.
  • Each line represents a moving average.
  • These five data points create a ‘cloud’ above and below the market price.
  • The overall trend is up when the current price is above the cloud.
  • The overall trend is down when the current price is below the cloud.
  • When the price is in the cloud, the trend is neutral.
  • Ichimoku works incredibly well at following the trend of the market.
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